Below is a snapshot of last week’s market performance and what to watch in the weeks ahead from Chadd Mason, Cabana CEO and co-founder.
Last week culminated a great quarter for investors. As bad as the fourth quarter of 2018 was, the first quarter of 2019 was almost as good. This was true for all equities, domestic and international, as well as bonds, real estate and commodities.
We commented numerous times over the past quarter on the likelihood of continued advancement in stocks, as the major indexes cleared important technical resistance levels, thereby forcing large professional investors off the sidelines. We’ve seen this trend continue as money gets deployed into equities each time there is a pullback. I am especially optimistic given the outperformance in emerging markets (China) and commodities. Energy has been a standout and is up 17% since the Christmas low. Copper is up 15%. The transportation index (IYT) has blown the doors off and is up 18%. These segments of the world markets are important to watch, as they evidence demand all along the supply chain. They all lagged behind U.S. markets throughout the second half of last year. In my opinion, that was a major factor in the selloff we saw during the fourth quarter. Investors were simply not seeing sufficient growth to withstand the increase in interest rates being introduced by the Federal Reserve.
Not surprisingly, the Central Bank has since backed off and forecast no new rate increases for the remainder of 2019. This dovishness caused a drop in rates all along the yield curve. This resulted in a yield curve inversion for the first time since 2007, which is not a healthy condition long term. Over the short term, it benefits income investments such as real estate, treasuries, corporate bonds and utilities. We will have to see which market has the growth story correct going forward. Emerging markets, transportation, energy and commodities are signaling growth, while the bond market is not. Unfortunately, the bond market usually gets it right.
For now, we can just hope to see longer-term interest rates begin to pick up and the yield curve normalize.
A PDF of this week’s market commentary is available here:
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